Why are mortgage rates not dropping?
Why are Mortgage Rates not dropping?
Five-year Government of Canada bond yields fell eight basis points last week, closing at 0.56% on Friday. Five-year fixed-rate mortgages are available in the 2.54% to 2.99% range (for now), and five-year fixed pre-approval rates are offered at rates as low as 2.79%.
Five-year variable-rate mortgages are available in the prime minus 0.40% to prime minus 0.20% range, which translates into rates of 2.30% to 2.50% using today's prime rate of 2.70%.
In the strange times that we live in today, Canadian mortgage rate movements are no longer being tied to changes in the bond market. Lenders are using the Bank of Canada's overnight lending rate and the drop in the bond market to increase their "spreads", due to the threat of regulators requiring increased capital cost on mortgage portfolios.
You don't have to like but now you understand why.
Posted by James McNeill
on January 22, 2016